California Litigation News & Practice Tips

In California, a trade secret is economically valuable information not generally known to the public and that the owner makes reasonable efforts to keep secret. Trade secret disputes often arise when an employee leaves and begins soliciting business from the company’s customers. In these situations, there is a fine – but important — line between a valuable customer list and contact list. The former is entitled to trade secret protection while the latter is not.

To qualify as a trade secret, a customer list must possess economic value. This means that the company incurred time or expense compiling the information or, alternatively, that a competitor would have to expend time and money to develop the information comprising the list. Generally, the more time, effort and money spent developing the customer list; the more likely it is entitled to protection.

Additionally, a customer list cannot simply contain information that a reasonably diligent competitor or sales person could independently gather. For example, a product or service that is sought by a specific category of customers (such as restaurants or hospitals) is often considered readily known to the public and is therefore not trade secret information.

However, a customer list that includes other valuable information, such as a record of each customer’s sales activity, key personnel, particular sales requirements, pricing information, etc., is much more likely to receive protection as a trade secret. Therefore, a valuable customer list entitled to trade secret protection should include much more information than a simple list of business contacts.

To prevent a former employee from using its customer list, the company must also show it took reasonable steps to keep its list secret. At a minimum, reasonable steps to protect a customer list should include restricting access to those employees who need such access, providing password protection, marking the lists “Confidential”, and requiring employees to sign confidentiality agreements.

A confidentiality agreement should contain, among other things, a definition of trade secrets that specifically includes customer lists, limitations on how employees can utilize trade secrets, and the types of relief the company can recover if the employee breaches the agreement.

There is no guarantee that a court will consider your customer list a trade secret. However, to help protect your customer list, you should take the foregoing measures.

In Carr v. Rosien, the California Court of Appeal held: 1. A lis pendens must be mailed to the owner’s address shown on the county’s assessment roll even if the address is incorrect; and 2. The failure to do so void’s the lis pendens not only as to the owner but also as to the owner’s transferees.

The takeaway is clear: when you record a lis pendens serve the owner at the address listed on the assessor’s roll even if that is not the owner’s proper address. Because, according to the Carr Court, “[Code of Civil Procedure § 405.22] makes no exception for cases in which the address on the assessor’s roll is incorrect. This favors the claimant, by giving it a safe harbor: all it has to do is mail the lis pendens to the address shown on the assessor’s roll; it does not have to make sure the address is valid. If a properly addressed lis pendens is returned undeliverable, that is not the claimant’s problem.”

Other courts may disagree that claimants are relieved of any obligation to send notice to the owner’s correct address, if known. Therefore, it would probably be a mistake not to send notice to both the owner’s address listed on the assessor’s roll and the correct address, if known.

On April 30, 2014, I was quoted by Law360 in an article titled "Five Tips For A Disaster-Free Deposition." Here is a link to the article for Law360 subscribers. Or you can find a synopsis of the article here.

On September 12, 2013, I will be a speaker at a CEB Seminar on overcoming settlement impasse in mediation. The seminar is 1:15 p.m. to 2:45 p.m. at the UCLA Faculty Center. I hope to see some of you there.

In a prior post, I discussed the disagreement among appellate courts concerning the effect of multiple settlement offers under Code of Civil Procedure Section 998. Yesterday, in Martinez v. Brownco Construction Co., Inc., the California Supreme Court resolved the dispute by holding that a later 998 offer does not extinguish an earlier one. Its reasoning was: 1. Section 998 does not prohibit multiple offers; 2. multiple offers foster settlement (the goal of Section 998); 3. parties should not be penalized or rewarded for making or rejecting multiple offers; 4. encouraging more 998 offers promotes the public policy of compensating injured parties; and 5. trial courts have discretion to deny the benefits of Section 998 if there is any gamesmanship with the offers. Accordingly, plaintiffs and defendants may now make multiple 998 offers without fear that a second one will extinguish the ability to recover interest, expert witness fees, or both, from the date of the first 998 offer. To borrow the words of Justice Marvin Baxter, who authored the Martinez decision, "the chances of settlement increase with multiple offers." Martinez is welcomed news in these most-difficult economic times for courts and litigants. As Jim Carey said, "settle, settle, settle."

As a general matter, the prevailing party in a lawsuit is not entitled to recovery of his attorney’s fees unless there is a written contract that contains an attorney’s fees provision. When there is no such basis for attorney’s fees, attorneys often forget that requests for admissions (RFAs) are a simple, cost-effective means to recover attorney’s fees through cost-of-proof sanctions.

An RFA requires the responding party to admit factual matters, matters in controversy, opinions relating to a fact and even legal conclusions. Through RFAs, parties may be required to admit any of the following: significant dates, the existence of conditions, ownership of property, whether certain conduct was negligent or the value of property.

An RFA may even pertain to matters the admission of which would require the responding party to capitulate. For example, a party could request admission of the following: 1. You have no grounds to prosecute (or defend) this lawsuit; 2. Your damages are speculative; 3. Your cause of action for breach of professional negligence is time barred; or 4. You ran the red light before the accident. You get the idea.

In practice, attorneys prepare the responses to RFAs for their clients, who must verify the responses under penalty of perjury. Attorneys usually deny matters that their clients should admit, rather than concede any ground in the litigation. This creates opportunity for the wise.

A responding party that unreasonably denies an RFA must pay the costs, including attorney’s fees, incurred by the requesting party in proving the denied matter. Costs incurred prior to the denial of the RFA are not recoverable, so it’s better to propound your RFAs sooner rather than later.

Bottom line: Propounding simple, well-crafted RFAs forces your adversary to either admit harmful matters or deny them and risk cost-of-proof sanctions. I can’t think of a better win-win situation for you and your client. Time to get busy.

This month the California Supreme Court overruled Bank of America v. Pendergrass (1935) 4 Cal.2d 258 (Pendergrass). Seventy-five years ago, the Pendergrass court held that the fraud exception to the parol evidence rule could not be used to contradict any of a contract’s stated terms.

The Riverisland decision will have far-reaching effects. In the past, lenders frequently relied on the Pendergrass rule to bar evidence by borrowers of oral promises at odds with the terms of their loans. Both Pendergrass and Riverisland involved claims by borrowers that their lenders had orally promised longer repayment terms than were stated in their loan agreements. The Riverisland decision means consumers can now present evidence of oral promises at odds with their written contracts.

However, this may not be a homerun for consumers. Like many consumers, the borrowers in Riverisland did not read the agreement before signing it. The Supreme Court in Riverisland refused to decide whether the borrowers could have justifiably relied on the lender’s promises notwithstanding its decision in Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394 that the negligent failure to read a contract precludes a finding that it is void for fraud. The Riverisland Court left open the possibility of a more lenient rule in cases where equitable relief is sought for fraud in the inducement of a contract.

Bottom line: The Pendergrass rule is dead and the parol evidence rule has been severely diminished. Well-pled claims for promissory fraud will now survive demurrer, but whether they get past summary judgment will depend on the facts of the case. In cases where consumers have not read the agreements before signing them, they will have to show facts establishing that their failure to read the contracts was not negligent given the alleged promises or relationship of the parties.

Attorneys frequently do not file a separate notice of appeal to challenge a trial court’s post-judgment award of attorney’s fees and costs because they assume one notice of appeal from the judgment is sufficient. Filing a single notice of appeal is risky business because California Courts of Appeal disagree whether two separate notices of appeal are required.

In Grant v. List & Lathrop (1992) 2 Cal.App.4th 993, the trial court entered judgment and awarded fees and costs but left the amount blank. The trial court later entered a separate post-judgment order (separately appealable), determining the amount of fees and costs. Appellants did not file an appeal from the post-judgment order. The Grant Court held that a separate notice of appeal was not required because the judgment expressly awarded fees and costs. Therefore, a notice of appeal from the judgment was sufficient notice that appellants were seeking review of the fee award, as well as the judgment.

However, the Court in Silver v. Pacific American Fish Co., Inc. (2010) 190 Cal.App.4th 688 held that a separate notice of appeal was required. Like Grant, the judgment provided for recovery of fees and costs but left a blank space for the amount. In post-judgment proceedings, the trial court determined both the entitlement and amount of fees and entered a separately appealable order. No appeal was filed from the order. The Silver Court held that the judgment was insufficient to include the post-judgment order, and thus it did not have jurisdiction to review it without a separate notice of appeal.

Bottom line: Failure to file a separate, timely notice of appeal from a post-judgment order awarding fees and costs may result in the Court of Appeal finding that it lacks jurisdiction to review the order.